Civil Procedure

Sanctions - Spoliation - Coverage

The plaintiff brought claims against her doctor, Rankin, for negligence and breach of informed consent in connection with back surgery. During a continuance in the trial, the doctor destroyed several thousand pounds of patient records while selling one of his properties where the records were stored. Based on this knowing destruction of relevant evidence, the circuit court directed a verdict on the informed consent claim. The jury returned a verdict for more than $2 million in damages.

The court of appeals, in an opinion written by Judge Bridge, affirmed. Case law holds that "[w]hen a party deliberately destroys documents, the court may find spoliation by applying a two-part analysis. First, the court should `consider … whether the party responsible for the destruction of evidence knew, or should have known, at the time it destroyed the evidence that litigation was a distinct possibility.' Second, the court should consider `whether the offending party destroyed documents which it knew, or should have known, would constitute evidence relevant to the pending or potential litigation'"(¶ 16).

"The first part of the test - whether Rankin knew or should have known that litigation was a distinct possibility - was obviously met because Rankin was the defendant in a medical malpractice action at the time he destroyed the records. Rankin does not argue otherwise" (¶ 17). The record more than supported the second element as well, despite Rankin's claim that he had "innocently" destroyed the records. "The circuit court noted that the trial was specifically adjourned for the purpose of developing the informed consent issue, and that shortly thereafter, Rankin intentionally destroyed records that Rankin knew or should have known were relevant to this very issue" (¶ 19).

The court also held that the sanction imposed was "just." The "clear import" of the circuit court's findings was that Rankin had behaved "egregiously" and in "bad faith" even though those words were not expressly stated in the ruling. The prejudice to the plaintiff's informed consent case was obvious and palpable because "[o]nly Rankin's full patient records could tell the entire story" (¶ 24).

Finally, the court of appeals rejected arguments by both Rankin's insurer and the Wisconsin Patients Compensation Fund that Rankin's misconduct precluded coverage. The judgment was predicated on Rankin's professional services, not spoliation.

Default - Subrogation - Collateral Source Rule

Otto brought this medical malpractice action based on a failure to diagnose his cancer. (His estate was substituted for him as a plaintiff after he died.) The pleadings named Physicians Insurance Co. (PIC) as the doctors' insurer, and Blue Cross as having a subrogation interest. PIC's answer was filed more than a year after it was due. The circuit court found that there was no excusable neglect for PIC's delay, struck PIC's belated answer, and ruled that PIC was liable for the entire amount of Otto's damages.

The court of appeals, in an opinion authored by Judge Hoover, affirmed in part and reversed in part. First, the court of appeals held that the default judgment was properly granted. The circuit court had found no excusable neglect, and PIC offered no excuse on appeal other than a "conclusory statement." The court of appeals derisively observed: "Indeed, failure to proofread pleadings would seem to be one of the more obvious examples of carelessness within the legal profession" (¶ 21). Absent excusable neglect, the court was not obligated to address the interests of justice.

Second, PIC contended that the effect of its default should have been only to establish coverage, not negligence. Yet "[t]he effect of the court striking PIC's answer is that PIC failed to deny these allegations and, therefore, is deemed to have admitted them" (¶ 25). "Although PIC claims the insureds' answers should inure to its benefit, it cites no Wisconsin law for such a proposition. Such a proposition would be contrary to the direct action statute - insurers whose insureds were also named would not be required to answer a complaint while companies named alone would have to respond. This result would create unpredictability for insurers; a more logical rule is that they must always respond. Moreover, nothing in the statutes suggests one party's answer should benefit another" (¶ 26).

Third, PIC could not complain that it lacked notice that the other defendants (the negligent doctors) were being dismissed. Once a default judgment was granted against PIC, the "court was not required to give PIC notice, or consult it, about the other parties' dismissal" (¶ 27).

Fourth, PIC claimed it should have been permitted to offset about $43,000 in medical payments made by Blue Cross. "Ordinarily, subrogation and the collateral source rule work together. Subrogation prevents double recovery by a plaintiff while the collateral source rule prevents payments made by an insurer from benefiting the defendant. However, `where the insurer is barred from pursuing a claim [of subrogation], the tortfeasor is entitled to a reduction in judgment for the amount of that claim.' In such a situation, the risk of double recovery by the plaintiff, from both the insurer and the tortfeasor for the same injury, defeats the collateral source rule. Indeed, Wisconsin courts recognize a plaintiff should be made whole, but no more than whole" (¶ 31) (citations omitted).

Otto contended that PIC lost its subrogation interest when it defaulted, but the court declined to address that argument because the statute of limitation had run on Blue Cross's subrogation claim when the default occurred. "We therefore hold that when judgment is entered against a tortfeasor, if a concomitant subrogation claim is time-barred because the statute of limitations has run, the Lambert-Koffman rule applies to invalidate the collateral source rule. Thus, PIC is entitled to an offset for the subrogated amount. On remand, the clerk of courts shall adjust the judgment accordingly by subtracting $42,635.26 from the judgment against PIC" (¶ 32).

This case involves Wisconsin's theft by contractors statute,Wis. Stat. section 779.02(5). A critical issue on appeal was the legal question of whether the statute prohibits a prime contractor from paying itself profit on items it supplied as a subcontractor before all other subcontractors have been paid for labor and materials in full (proportionately in cases of a deficiency).

In a majority decision authored by Judge Higginbotham, the court of appeals first concluded that the statute is ambiguous in that it does not plainly state whether a prime contractor also acting as a subcontractor is subject to the terms of the statute (see ¶ 16). The court then determined, based on case law examining the statute's text, its legislative history, and its underlying purpose, that "§ 779.02(5) precludes a prime contractor who also acts as a subcontractor from paying itself a profit before all other subcontractors have been paid in full for amounts due or to become due and owing for their labor and materials, or paid proportionately where there is a deficiency" (id.).

Said the majority, "we conclude that, under Wis. Stat. § 779.02(5), contractors, including those acting as both prime contractor and subcontractor, have a fiduciary duty to pay all subcontractors for their labor and materials in full, or proportionally in cases of a deficiency, before paying themselves a profit. When a prime contractor also acts as a subcontractor, it may pay itself for labor and materials, but cannot pay itself a profit for the materials provided for improvements on an owner's premises until all moneys due and owing or to become due for labor and material are made to other subcontractors, or paid proportionally in cases of a deficiency" (¶ 23).

Judge Dykman filed a concurring opinion.

Sexual Assault - Assault of a Corpse

The defendants went to a cemetery intending to remove a specific body from its grave so that one of them could engage in sexual intercourse with the corpse. The three men used shovels to reach the grave but were interrupted in their plans, because a vehicle drove into the cemetery and they ran away. The defendants were charged inter alia with attempted third-degree sexual assault, as parties to a crime, contrary to Wis. Stat. sections 940.225(3), 939.05, and 939.32. After a preliminary hearing, the circuit court denied bindover for the charge of attempted third-degree sexual assault, finding that the sexual assault statute did not apply to sexual intercourse with a corpse. Specifically, the circuit judge concluded that section 940.225(7), which provides that the sexual assault statute "applies whether a victim is dead or alive at the time of the sexual assault or sexual intercourse," allows prosecution for the sexual assault of a dead body only if the defendant committed the sexual assault in a series of acts including acts that caused the death of the victim. The state appealed.

In a decision authored by Judge Dykman, the court of appeals affirmed. The sole issue before the court was "whether Wisconsin's sexual assault statute, Wis. Stat. § 940.225, criminalizes sexual intercourse with a corpse where the defendant was not involved in the individual's death and the corpse was already buried before the sexual act" (¶ 4). The state argued that the plain language of section 940.225(7) (quoted above) "makes the entire sexual assault statute applicable whenever a defendant sexually assaults a dead body, regardless of the surrounding circumstances" (¶ 6).

Concluding that the statute is ambiguous, the appellate court held that "the more reasonable interpretation is that § 940.225(7) was intended by the legislature to allow a sexual assault charge to succeed where a defendant sexually assaulted and caused the death of his victim and the sequence of events is unclear, rather than to criminalize necrophilia generally" (¶ 1).

Criminal Procedure

Right to a Public Trial - Courthouse Locked During Portion of Defendant's Trial

During the defendant's one-day jury trial for operating a motor vehicle while intoxicated (5th offense), the state finished presenting its evidence at 4:24 p.m. Pursuant to the county's policy, the courthouse doors were locked at 4:30 p.m. Although the doors to the courtroom remained open, both parties agreed that the doors of the courthouse were locked during the presentation of the defendant's entire defense and the state's rebuttal (a period of time from 5:04 p.m. until 6:15 p.m.). The court was then in recess until the doors to the courthouse were reopened around 7 p.m.

The only issue raised on appeal was whether the closure of the courthouse, which denied public access to the courtroom during the trial, violated the defendant's constitutional right to a public trial. In a decision authored by Chief Judge Cane, the court of appeals concluded that it did.

The right to a public trial is protected by the Sixth Amendment to the U.S. Constitution, which guarantees that "[i]n all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial." U.S. Const. amend. VI. This right is applicable to the states through the Fourteenth Amendment. Though the right is a basic tenet of our judicial system, where an unjustified closure is trivial, there is no constitutional violation (see ¶ 9). Federal appellate courts have held that closures are trivial in instances in which the core values of the Sixth Amendment have not been violated and, conversely, they have held trial closures are not trivial in situations in which critical portions of the trial were closed to the public. "In short, the triviality inquiry goes principally to the length of the closure and what parts of the trial were closed" (¶ 12).

In this case the closure of the courthouse for over an hour while the court was in session for a one-day trial was not "extremely short" and, during the closure, crucial portions of the trial (the defendant's response to the accusations against him and the state's rebuttal thereto) took place. Said the court of appeals, this closure "was not a trivial violation" (¶ 17). Although the doors to the courtroom itself remained unlocked, "the fact that the doors to the courthouse were locked, without an alternative entry, in effect denied the public access to the trial" (¶ 15). Accordingly, the appellate court reversed the judgment of conviction and remanded the matter for a new trial.

John Doe Hearings - Right of Complaining Party to Subpoena Witnesses

The Wisconsin statutes establish procedures for the conduct of John Doe investigations. Pursuant to Wis. Stat. section 968.26, if a person complains to a judge that he or she has reason to believe that a crime has been committed within his or her jurisdiction, "the judge shall examine the complainant under oath and any witnesses produced by him or her and may, and at the request of the district attorney shall, subpoena and examine other witnesses to ascertain whether a crime has been committed and by whom committed." In this case the person filing the petition for a John Doe investigation was a private citizen and the judge presiding over the matter did not permit him to subpoena the witnesses he wanted to call at the hearing. The legal question before the court of appeals was whether section 968.26 permits a person filing a John Doepetition to compel the appearance of witnesses at the hearing by subpoenas not issued by the judge presiding over the John Doe investigation (see ¶ 9).

In a decision authored by Judge Fine, the court of appeals concluded that the presiding judge erred in not permitting the complaining party to subpoena witnesses for the hearing. It reached this result by application of Wis. Stat. section 885.01(1), which is "the universal mechanism to compel the attendance of witnesses and the production of evidence. It permits subpoenas to be issued `[b]y any … clerk of a court … to require the attendance of witnesses and their production of lawful instruments of evidence in any action, matter or proceedingpending or to be examined into before any court, magistrate, officer, arbitrator, board, committee or other person authorized to take testimony in the state.' `Any' means any, and ... there is nothing in Wis. Stat. § 968.26 that removes John Doe matters from § 885.01(1)'s universal application" (¶ 12) (emphasis added by court).

Accordingly, the court of appeals concluded that the complaining party is entitled to have the clerk of courts issue subpoenas to those whom he wishes to have testify at the hearing (see ¶ 14).

Insurance

Dwelling - Rental Property - "Valued Policy Law"

"The dispositive issue on this appeal is whether, under Wis. Stat. § 632.05(2) (2005-06), the insured `occupied primarily as a dwelling' a cabin that he owned that was damaged by fire" (¶ 1). Although the circuit court ruled that the insured, Cambier, met this condition for purposes of summary judgment, the court of appeals, in an opinion written by Judge Vergeront, reversed.

The appellate court held that the record showed instead that Cambier used the cabin "primarily as a rental property" (¶ 3). The issue arose because the policy limit for the dwelling was $85,000, but the appraisers estimated the cabin could be repaired or replaced for substantially less money. Cambier also had a home in Illinois, which was his primary residence. Section 632.05(2), the so-called "valued policy law," provides that an insurer must pay the policy limits, not the actual amount of loss, if an owned property used "primarily as a dwelling" is "wholly destroyed." Nothing in the statute, however, "suggests that an insured may occupy only one real property `primarily as a dwelling.' `Primarily' refers to the uses of one property when there is more than one use: occupancy as a dwelling must be the primary use and may not be secondary to another use. The statute does not say that it applies only to an insured's `primary dwelling'" (¶ 15). Case law supported the conclusion that the statute "does not exclude real property that is owned by the insured and occupied by the insured primarily as a dwelling solely because it is not the insured's primary residence" (¶ 17). But Cambier's use of the cabin failed to qualify under the statute because he used it primarily as a rental property. Although he kept personal property in the cabin, he himself stayed in the cabin for only short periods of time in 2004 and 2005 and rented it during 10 of the 14 preceding months.

Intellectual Property

Trademark Infringement - Insurance - "Known Falsity"

Western Wisconsin Water (Western) sued Crystal Canyon for trademark infringement involving a bottled water brand called "La Crosse Premium Water." In 1997 Western sold its distributorship business in the La Crosse brand to Quality Beverages, which used the logo on items such as its trucks, uniforms, and bottles. In 2001, Quality Beverages purportedly sold the La Crosse brand to Crystal Canyon, which used the same items. Western, which had retained the right to repurchase the La Crosse brand, protested and later attempted to start a new distributorship but recovered less than 1/6 of its former customers. A jury returned a verdict in favor of Western, but the trial judge set it aside based on insufficiency of the evidence on the causation element. Anticipating an appeal, the judge also ruled that Crystal Canyon's comprehensive general liability (CGL) policy provided coverage for both the actual damages and the punitive damages found by the jury.

The court of appeals, in a decision authored by Judge Snyder, affirmed in part and reversed in part. First, sufficient evidence supported the jury's finding of causation. Western presented testimony by several "confused" former customers, expert testimony, and circumstantial evidence regarding Crystal Canyon's use of the logo on its trucks and uniforms. The court agreed with Crystal Canyon that Western could have obtained more compelling evidence, but "Western did present evidence of actual customer confusion and expert testimony on the resulting damages. Furthermore, a jury could infer from the undisputed fact that Crystal Canyon used the La Crosse Premium Water trucks, uniforms and some five-gallon bottles that customers were confused and Western's business in the area was affected. A jury verdict is not to be second-guessed or tampered with if it is supported by the record. Crystal Canyon's argument that there was more and better evidence available is simply irrelevant if there is `any credible evidence' to support the verdict" (¶ 21).

Second, the court of appeals affirmed the ruling that the CGL policy provided coverage and that its "known-falsity" exclusion was inapplicable. Reviewing divergent case law, the court elected to follow a line of cases holding that the phrase "`infringement of title' is broad enough to encompass trademark infringement" (¶ 28). Nor did the known-falsity exclusion preclude coverage. "Crystal Canyon did not try to pass off its own water as La Crosse Premium Water. Rather, it caused confusion by using the trademarked trucks and uniforms and delivering any remaining La Crosse Premium Water still in its inventory to customers while it transitioned the Quality Beverages distribution business over to Crystal Canyon" (¶ 31). In short, intentional conduct alone is not sufficient. Crystal Canyon did not "publish" any material. "The question would be different if Crystal Canyon had added the logos after purchasing the distributorship; however, we are not inclined to hold that Crystal Canyon's temporary use of the already-labeled trucks, uniforms and bottles amounts to conduct that can be defined as oral or written publication of materials" (¶ 32).

Nor was the "falsity" element present. No evidence showed that Crystal Canyon "published any oral or written material that it knew to be untrue" (¶ 35). Finally, the court rejected the insurer's contention that the punitive damages finding satisfied the known-falsity exclusion. Although the jury found that Crystal Canyon acted "in intentional disregard of Western's rights," this finding "is not the equivalent of an intent to deceive and cannot be invoked to demonstrate knowledge of falsity" (¶ 34).

Leone Bush lives in a nursing home in Chippewa County and receives institutional Medical Assistance (MA). When Leone moved to Chippewa County, the Chippewa County Department of Human Services (the department) determined that, under Wis. Stat. section 49.90, her husband, Samuel, was required to contribute some of his income ($776.48 per month, minus a $45 personal allowance) to her care.

Leone appealed to the Division of Hearings and Appeals. A hearing examiner ruled that Leone was not liable for any of the costs of her care because she had no income, and that Samuel's income could not be attributed to Leone under Wis. Stat. section 49.455. The circuit court reversed the hearing examiner's decision. In a decision authored by Judge Higginbotham, the court of appeals reversed the circuit court.

At the core of the dispute in this case was the department's asserted requirement that Samuel pay for part of Leone's nursing home expenses, which, in turn, would reduce the amount of MA benefit payments the department would incur on Leone's behalf. The department sought to obtain these contributions by invoking its authority under Wis. Stat. section 49.90(2) to compel a spouse to financially support his or her institutionalized spouse. In response Samuel argued that Wis. Stat. section 49.455 bars the department from invoking Wis. Stat. section 49.90 to require him to support Leone while she receives MA benefits and lives in this nursing home.

The appellate court agreed that "in general § 49.90(1)(a)1. obligates a spouse to support a dependent spouse who is unable to financially care for him or herself while residing in an institution. However, this language must give way to the more specific terms of Wis. Stat. § 49.455, which ... is specifically concerned, in part, with the allocation of income from a community spouse to an institutionalized spouse receiving medical assistance benefits" (¶ 15). Turning to the latter statute, the court noted that "[s]ubsection 49.455(2) plainly states that the provisions of that section apply in determining eligibility for medical assistance and in determining the required contribution to an institutionalized person's care. In addition, § 49.455(3)(a) unambiguously declares that the income of a community spouse is not available to the institutionalized spouse `during any month in which that other spouse is an institutionalized spouse,' with exceptions not applicable where, as in this case, a community spouse's income was paid solely to him. See § 49.455(3)(b)1.-2." (¶ 16).

"In summary, it is plain that Wis. Stat. § 49.455 specifically governs the allocation of income between an institutionalized spouse and a community spouse after a determination of medical assistance eligibility. To that extent, § 49.455 controls, rather than the more general provisions of Wis. Stat. § 49.90 which require each spouse to support the other spouse to the extent possible. Thus, we conclude that the hearing examiner correctly determined that the Department is barred from invoking § 49.90 to require [Samuel] to provide maintenance for Leone to offset the medical assistance payments the Department makes to Leon[e]'s nursing home" (¶ 22).

Torts

Safe Place - Structural Defect

Rosario broke her foot after she slipped on a step that failed to meet the state's building code. She filed claims for negligence and a safe place violation. The circuit court granted summary judgment in favor of the defendants on the ground that, under case law, "Wis. Stat. § 893.89 bars safe place claims resulting from injuries caused by structural defects ten years after a structure is substantially completed. Here, it is undisputed that the small-step structural defect was completed during the construction of the building forty years ago, far beyond the ten-year exposure period of the statute of repose" (¶ 5).

The court of appeals, in an opinion written by Judge Wedemeyer, affirmed. "Because the undisputed facts clearly demonstrate that Rosario's injuries were caused by the defective structural design of the front step, her claim is subject to the statute of repose and any consequences of its application" (¶ 19). From this it followed that "[b]ecause it is uncontroverted that the defectively designed and constructed front step to Oliver's building has been in an unchanged condition since 1965, the ten-year exposure period of the statute of repose has expired. A pari Rosario's claim is barred by Wis. Stat. § 893.89" (¶ 22). The court also rejected Rosario's alternative contention that the lack of warnings or signs created an "unsafe condition" under the case law. Among other shortcomings, Rosario failed to show that the owners had constructive notice that the step was "actually unsafe" (see ¶¶ 23-30).

Medical Device - Doctrine of Preemption

The Blunts brought negligence and product liability claims against Medtronic regarding a defibrillator. The circuit court granted summary judgment in favor of Medtronic based on federal preemption.

The court of appeals, in an opinion written by Judge Wedemeyer, affirmed. "The sole issue in this case is whether the Blunts' common law tort claims are pre-empted by federal law. The doctrine of pre-emption stems from the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2, and operates to prevent state laws from conflicting with controlling federal laws" (¶ 7). The court observed that there has been a "great multitude of litigation across the country as to whether the state common law claim is pre-empted or not. Resolution of this issue is dependent upon whether the premarket approval process constitutes a federal requirement specifically applicable to a particular device, and whether the state common law tort suit would constitute a state requirement different from or in addition to the federal requirement. Twelve decisions across nine federal circuits have concluded that the premarket approval process for Class III devices constitutes a federal requirement specifically applicable to a particular device and that the state common law tort suit would constitute a state requirement in conflict - therefore, pre-emption applies" (¶ 9). An 11th Circuit case, however, held that the premarket approval process did not trigger preemption (see id.). The court of appeals found the majority view more persuasive. "The premarket approval process involves `an exhaustive inquiry into the risks and efficacy of a device,' and `imposes federal requirements based on the highly detailed and prescriptive nature of the PMA process and the approval order that results from it'" (¶ 12).

First, it was undisputed that the device underwent the prescribed premarket approval process, which constituted a specific federal requirement. Second, "[a]lthough there is some dispute as to whether a jury verdict following a common law tort suit results in a state requirement, we are persuaded that such conclusion is correct. State law actions can constitute a state requirement if the verdict rendered in such action would impose a requirement on a manufacturer that is not required by the FDA during the premarket approval process…. There is really no difference between a statute or regulation on batteries in defibrillators and a jury verdict finding the battery in an FDA approved defibrillator to be defective. If the State cannot pass a statute or regulation on this issue because of pre-emption, we certainly cannot allow a lawsuit to circumvent pre-emption simply because it came through the judicial system instead of the legislative system. Based on the foregoing, we conclude that the common law tort claim in this case does constitute a state requirement" (¶ 17). Third, the federal and state requirements conflict because a jury verdict in the Blunts' favor would be tantamount to a finding that the FDA's approval of the design was in error (see ¶ 19). Thus, Congress intended that its processes preempt state court actions.

In dissent, Judge Fine contended that the majority asked and answered the wrong question. "[T]he nub here is: Whether Medtronic is protected by the pre-emption doctrine when it had the option under federal law of selling two approved devices (for shorthand purposes, the good one and the not-so-good-one) but sold the not-so-good-one - knowing that it had a better device that was also approved - in order to clear its inventory of the obsolete, less-safe devices. In my view, it is not" (¶ 22).